Ministers deny interest in raising inheritance tax

Downing Street distanced itself last night from reports that inheritance tax will rise to 50 per cent for the wealthiest families.

Downing Street distanced itself last night from reports that inheritance tax will rise to 50 per cent for the wealthiest families.

The Institute for Public Policy Research (IPPR) proposed that the 40 per cent levy should be replaced by a more flexible banding system ranging from 22 per cent to 50 per cent.

The plan would mean the rich paying half the value of estates worth more than £763,000 to fund cuts for the middle class, particularly those in London and the South-east with high house prices. The left-leaning think-tank's close links to No 10 prompted suggestions that the proposal was being considered as a "big idea" for Labour's next election manifesto. But a Downing Street spokesman denied it was examining the plan. He said: "The IPPR put out proposals from time to time. We played no part in that."

A Treasury spokesman said: "There is no active review of inheritance tax beyond the general principle that we keep everything under review."

The IPPR envisaged that 22 per cent would be paid on estates worth £263,000 to £288,000, 40 per cent on those between £288,000 and £763,000 and 50 per cent above that level.

It calculated the redistribution would raise £147m more a year for the Treasury while cutting death duty for almost nine out of 10 families. It suggested the extra money should be channelled into the new Child Trust Fund for the poorest youngsters. Dominic Maxwell, an IPPR researcher, said: "As well as being fairer to those who inherit assets, this reform would also benefit those born with nothing, through a beefed-up Child Trust Fund.

"The past decade has seen a worrying rise in wealth inequality. Inheritance-tax reform is only part of the response needed but it would certainly help to protect the principle that government can and should seek to moderate wider wealth inequalities."

The proposal came days after the Tories published figures showing a steep rise in the numbers of estates eligible for the tax. In 1997, when Labour came to power, only Gerrards Cross in Buckinghamshire had an average house price higher than the level at which the tax was levied, but, according to Oliver Letwin, the shadow Chancellor, there are now 86 such towns. This was because property values had jumped by 130 per cent in seven years while the threshold for inheritance tax has gone up by just 22 per cent to £263,000.